Choice Hotels | October 27, 2016

ROCKVILLE, Md., Oct. 27, 2016 — Choice Hotels International, Inc. (NYSE:CHH) today reported the following highlights for the third quarter 2016:

  • Diluted earnings per share ("EPS") for the three months ended September 30, 2016 totaled $0.84 per share, an increase of 17 percent from the same period of 2015.
  • Net income for the three months ended September 30, 2016 totaled $47.6 million, an increase of 15 percent from the same period of 2015.
  • Revenues for the three months ended September 30, 2016 totaled $267.6 million, an increase of 11 percent from the same period of 2015.
  • Franchising revenues for the three months ended September 30, 2016 totaled $113.1 million, an increase of 7 percent from the same period of 2015 and domestic system-wide gross room revenues for the three months ended September 30, 2016 totaled approximately $2.1 billion.
  • Domestic royalty fees for the three months ended September 30, 2016 totaled $90.7 million, an increase of 7 percent from the same period of 2015.
  • Domestic system-wide revenue per available room ("RevPAR") increased 4.5 percent in the third quarter of 2016, as occupancy and average daily rates increased 70 basis points and 3.4 percent, respectively, from the same period of 2015.
  • Domestic RevPAR performance for the third quarter of 2016 exceeded total industry results by 120 basis points and also exceeded growth reported by Smith Travel Research for the primary chain scale segments in which the company competes.
  • Effective domestic royalty rate for the three months ended September 30, 2016 was 4.39 percent, an increase of 12 basis points from the same period of 2015.
  • Domestic hotel executed franchise agreements totaled 161 for the three months ended September 30, 2016, an increase of 25 percent from the same period of 2015, including a 13 percent and 30 percent increase in new construction and conversion agreements, respectively.
  • Comfort family of brands recorded its 24th consecutive month of RevPAR index gains compared to its competition and over the last two years the company has executed 162 new construction franchise agreements which is more than double the number of agreements executed in the prior two year period.
  • The company's domestic pipeline of hotels awaiting conversion, under construction or approved for development as of September 30, 2016 increased 20 percent from September 30, 2015. The domestic new construction pipeline for the company's Comfort brand as of September 30, 2016 totaled 180 hotels, a 30 percent increase from September 30, 2015.
  • Adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") from hotel franchising activities for the three months ended September 30, 2016 totaled $85.5 million, an increase of 5 percent over the prior year period.

"We are pleased with our results for the third quarter, which were highlighted by a 17 percent increase in diluted earnings per share and a 4.5% increase in our domestic RevPAR which continues to outpace the RevPAR performance of the industry," said Stephen P. Joyce, chief executive officer, Choice Hotels. "In addition, our efforts to rejuvenate the Comfort brand are working, including the implementation of higher standards for hotels joining the brand, requiring meaningful property improvement plans at contract windows and targeting underperforming Comforts for termination and replacement with new construction product. These efforts have resulted in 24 consecutive months of RevPAR index gains and are helping to fuel the growth of our new construction development pipeline."

Special Item

During the nine months ended September 30, 2016, the company recorded an executive termination benefit charge of approximately $2.2 million. This special item impacted diluted EPS by $0.02 per share for the nine months ended September 30, 2016. The company uses non-GAAP measures that exclude executive termination benefits because those non-GAAP measures allow for period-over-period comparison of on-going core operations before the impact of these charges. These non-GAAP measures, which are reconciled to the comparable GAAP measures in Exhibit 8, include adjusted net income, adjusted diluted EPS, adjusted hotel franchising selling, general and administrative expenses, adjusted EBITDA and adjusted hotel franchising margins.

Use of Cash Flows

Dividends

During the nine months ended September 30, 2016, the company paid cash dividends totaling approximately $35 million. Based on the current quarterly dividend rate of $0.205 per common share, the company expects to pay dividends of approximately $46 million during 2016.

Share Repurchases

The company repurchased 0.6 million shares of common stock under its share repurchase program during the nine months ended September 30, 2016, at a total cost of approximately $29 million. The company currently has authorization to purchase up to 1.1 million additional shares under this program.

Hotel Development & Financing

Pursuant to its program to encourage acceleration of the growth of our upscale select-service Cambria hotels & suites brand, the company advanced approximately $78 million in support of the Cambria brand during the nine months ended September 30, 2016. The company also recycled approximately $25 million of investments in support of Cambria resulting in net advances of $53 million for the current year. These advances are primarily in the form of joint venture investments, forgivable key money loans, senior and mezzanine lending and site acquisitions. On September 30, 2016, the company had approximately $181 million reflected in its consolidated balance sheet pursuant to these financial support activities. With respect to lending and joint venture investments, the company generally expects to recycle these loans and investments within a five year period.

Outlook

The company's consolidated 2016 outlook reflects the following assumptions:

Hotel Franchising

  • Adjusted EBITDA from franchising activities for full-year 2016 are expected to range between $272 million and $274 million;
  • Net domestic unit growth for 2016 is expected to be approximately 2%;
  • RevPAR is expected to increase between 4% and 5% for the fourth quarter and range between 3.5% and 4.25% for full-year 2016; and
  • The effective royalty rate is expected to increase between 10 and 11 basis points for full-year 2016 as compared to full-year 2015.

Non-Hotel Franchising Activities

  • Net reductions in full-year 2016 EBITDA relating to our non-hotel franchising operations, which primarily relate to SkyTouch and vacation rental activities are expected to range between approximately $18 million and $19 million.

Other Items

  • The effective tax rate is expected to be approximately 33% for the fourth quarter and approximately 31.5% for full-year 2016.
  • Adjusted EBITDA and adjusted EPS estimates exclude executive termination benefits incurred in the nine months ended September 30, 2016 as discussed above under Special Item.
  • Diluted EPS estimates are based on the current number of shares outstanding and thus do not factor in any changes that may occur due to new equity grants or any further repurchases of common stock under the company's share repurchase program.

Consolidated Outlook

The company's fourth quarter 2016 diluted EPS is expected to be at least $0.51. The company expects full-year 2016 adjusted diluted EPS to range between $2.43 and $2.46 and full year 2016 adjusted EBITDA to range between $253 million and $256 million.

To view full financial release and corresponding tables please click the PDF icon or visit: http://media.choicehotels.com/phoenix.zhtml?c=217856&p=irol-newsArticle&ID=2216631